Spain could be forced to seek a bail-out within months, warns Barclays

The weight of bank debt needing refinancing next year could threaten Spain's solvency and force it to become the next European country to seek a bail-out, according to a report from the investment banking arm of Barclays.

Amid speculation last night that the rate of interest to be charged on the EU/IMF bailout could be as much as 6.7%, Fine Gael’s finance spokesman Michael Noonan said that kind of rate was "far too high" and unaffordable on any reasonable projection of growth.

The Department of Finance said the interest rate had still not been finalised, but given that much of the loan would be repayable over nine years the rate could be higher than the 5.2% charged to Greece but would not be as high as the 6.7% being quoted by some brokers.

Meanwhile, Anglo Irish Bank, which was downgraded to junk status yesterday evening, is expected to be closed swiftly, together with the Irish Nationwide Building Society, under the EU/IMF loan plan.

Officials hope to finalise the details of the €85bn package later today and have EU finance ministers approve it tomorrow.

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”

Desperate moments call for desperate measures. In June 1940, the British War Cabinet led by Winston Churchill offered a total national merger to a shattered France.

“All debts of Greece, Cyprus, Italy, Spain, Portugal, and Ireland will be fused immediately with German debt; a single treasury will control spending, and issue euro-bonds for all Euroland,” or some such formula.

This is the sort of game-changer that may now be required to save EMU and the Monnet dream. Germany must contemplate doing for Euroland what it has done for its own Volk in the East over the last 20 years – pay big transfers – or watch its strategic investment in the post-War order of Europe collapse with a bang, and in hideous acrimony. Tough call.

It is clear to those working in the bond markets that the debt crisis in the EMU periphery is nearing danger point, and risks spiralling out of control as quickly as the Lehman-AIG-Fannie-Freddie crisis in 2008.

Prof Willem Buiter, chief economist at Citigroup, said last week that Portugal is likely to need a rescue before the end of the year and that Spain will follow “soon after”.

With Europe agreeing a €85bn bail-out for Ireland's banks, analysts consider who, if anyone, could be next.

"The market seems to think it's inevitable Portugal requests assistance next - perhaps in January? - and then after that Spain will be scrutinised with a fine tooth comb over the coming months. In doing the work for the Outlook we've increasing come to the conclusion that whether you think the Sovereign problems stop at Greece, Ireland and perhaps Portugal depends on whether you think this is a problem with the overall Western financial system or whether you think its only a problem with individual over-leveraged entities."

LONDON (MarketWatch) — The euro zone’s sovereign-debt crisis intensified Tuesday, with yields on Spanish, Italian and other peripheral government bonds soaring in the wake of a weekend meeting of European Union finance ministers that failed to soothe fears of the potential for future defaults.